Exempt Organizations Technical Guide: Taxes on Excess Business Holdings - IRC Section 4943
19 June 2024
SUMMARY:Private foundations exempt under Section 501(c)(3) but not classified as public charities are subject to excise taxes on excess business holdings under Section 4943 of Chapter 42 of the Internal Revenue Code. Established by the Tax Reform Act of 1969 and expanded by the Pension Protection Act of 2006, these regulations prevent individuals from using private foundations to control business enterprises. Foundations must limit their business ownership, generally to 20% of voting stock, or 35% if non-disqualified persons control the business. Excess business holdings are subject to an initial tax of 10% and an additional tax of 200% if not corrected. Exceptions include a de minimis rule allowing up to 2% holdings without penalty, and specific provisions for holdings acquired under trusts or wills before May 26, 1969. Foundations must file Form 990-PF electronically for tax years starting on or after July 2, 2019. Compliance includes adhering to detailed regulations on the valuation and reporting of business holdings to avoid significant excise taxes.
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Desireé M. Bennett, EA - Principal
